Chet Currier—Patriotic Purchases Can’t Replace Wisdom of Diversity

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Investing has always been an emotional business, but never quite like this.

Since the terrorist assaults of Sept. 11, the financial markets have seen an outpouring of feeling directed straight at the elemental acts of buying and selling.

“Show your love and support for America buy stocks,” urged messages all over the Internet. “If you sell, you help the terrorists win.” In a widely published Associated Press photo, a hand-lettered sign on the New York Stock Exchange trading floor proclaimed, “Bury the Bears.”

All this had almost zero effect when the markets opened for business. Through the first long week of trading after the attack, nothing close to a populist rally occurred.

To market-watchers with long memories, this came as no surprise. Wishing in investing seldom makes it so. Ask central bankers, with all the resources at their command, how futile it can be to try to tell a stock market, a bond market or a currency market what to do.

The Federal Reserve, ostensibly the most powerful financial institution in the world, took a position on the front lines of last week’s bucket brigade with an ad hoc interest-rate reduction. It didn’t make much difference.


Useful lesson

Aside from a heaping portion of humility, what do we get out of this experience? To my eyes, it has been instructive for any individual investor who has ever struggled with the pull of greed, fear, pride, sentimentality and all the other emotions to which human beings are susceptible.

Veterans regularly remind us that investors cannot afford to let emotions override their judgment. As Richard Russell, who has been publishing the advisory newsletter Dow Theory Letters since 1958, wrote, “Brains and discipline and a plan will bring you success in the stock market. Emotions will kill you.”

No argument with that. The trouble comes when I try to solve the problem by some vague resolve to be, as Jerry Seinfeld might put it, the master of my domain. The best of intentions may not be enough.

“To panic is bad,” I tell myself. “Therefore I will not panic.” Great, until a time like Friday, Sept. 21 comes along, when the world is waiting for the market to open to see how much farther the Dow Jones Industrial Average, already down 12.8 percent in the past four trading days, is going to fall (another 1.7 percent, as it turned out).

“If you can keep your head in this situation,” a voice in your head tells you, “you probably don’t grasp the situation.”

OK, then, if a solemn vow isn’t going to be sufficient, I’ll apply myself to the task. I’ll model my actions after some investing legend like John Neff, who ran the Vanguard Windsor Fund from 1964 until he retired in 1995. “Judgment and fortitude were our prerequisites,” he said in his book “John Neff on Investing” published in 1999. “Judgment singles out opportunities, fortitude enables you to live with them while the rest of the world scrambles in another direction.”


Aiming too high

Ah, but what if I lack the skill or am not prepared to devote all day and every day to the job? Then the idea that I’m going to follow his example is awfully grandiose.

So what choices are left? If I’m going to invest for growth and a reasonable measure of inflation protection, I really have no practical course but to set up a program of regular investment in a diversified portfolio of mutual funds, making sure that bonds and/or money-market securities are represented along with stocks.

I can arrange to have this account fed directly by deductions from my paycheck or checking account, so that it takes no effort at all to keep the program going whichever way the financial winds blow.

Even this humble venture ought to be undertaken with the understanding that I risk ruining the whole plan if I deviate from it when events either a) cause me to doubt, or b) tempt me to overreach.

Sounds dull, doesn’t it? That’s just the point. To go about this with the discipline I’m aiming for, I’ll have to plan to get my adrenaline rush somewhere else.

Chet Currier is a columnist with Bloomberg News.

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